FHA Guidelines for Refinancing and Loan Programs

The FHA refinancing guidelines have been modified to make some of the FHA rules clearer to people. It has been done in order to make some regulations stricter. Some changes have been done to modify the streamline refinance plan and are a noncredit qualifying refinance mortgage plan.

fha streamline refinance

The main reason for applying for the FHA insured loans is the availability of refinance. Most of the individuals choose an adjustable rate loan, refinancing it after some time with a better rate of interest. The new rules, however, limit the time when one can avail this option.

Mandatory Changes in the Guidelines

It is important for the borrower to own a property in a certain period and make the payments as well. The new rules state that it is necessary for borrowers to make some minimum payments against the loan that he has refinanced.

According to these new rules, a person is supposed to wait for 210 days from the mortgage closing date before requesting for a refinance. Not only this, the applicants do not have to verify their employment as well as income for the streamline refinance transactions. It does not affect the borrowers directly, and has changed the procedure for sellers as well.

FICO Scores under the New Guidelines

These new rules have also assured a strong premium flow of revenue as well as have eliminated the unwanted credit risk. The FHA loan requirements regarding the FICO score and the down payments have also changed. All the new borrowers should have a minimum average rating of at least 580 in order to avail the benefits of paying a down payment of 3.5 percent.

New borrowers with a FICO score of less than 580 are supposed to make a down payment of minimum 10 percent. It will reduce the risk for lenders, as well as provide access to the borrowers who have done well in the past. Borrowers, who have a FICO score of 580, sometimes find it difficult to obtain a loan in spite of meeting the requirements.

In order to qualify for the FHA loan, the FICO score should be at least 620. If you are not able to meet the requirements of the score, it is better to take advice from the counselors. The house and the credit counseling assist borrowers in taking the correct steps. This could be a time consuming process, however, the time invested to raise the credit score under the guidance of the counselors would help in accomplishing the dream of owning a home.

FHA Hybrid Loan Programs

The Federal housing Administration (FHA) has updated its guidelines to introduce insured hybrid loans for buying homes. These are mortgages packages with fixed rates on the loans for the first few years, after which the rates adjust every year. Hybrid loans are available at reasonable rates, which make it easier for borrowers to take out these mortgages. Here are the essential features of hybrid loans.

The Basics

Hybrid loans begin as fixed rate packages for a specific term and then convert to adjustable rate mortgage (ARM) products. The interest rate remains the same for the fixed term. Lenders generally change the rate annually after the fixed period. Since lenders can amend the rate according to their convenience, they present the mortgages with a lower rate for the fixed period as compared to regular fixed rate packages.

Loan Types

The FHA extends a selection of four hybrid products. These are 3/1, 5/1, 7/1 and 10/1 hybrid loans. The names imply that the loans have fixed rates for 3, 5, 7 and 10 years respectively. The number1 indicates that lenders may revise the rate once a year.

There are other aspects of the loans. A 3/1 ARM has a yearly rate change cap of 1% and a total rate change cap of 5%. This constrains a lender to increase the rate by no more than 1% every year. In addition, the rate cannot rise by more than 5% over the loan term. For example, if the lender makes available the fixed rate in a 3/1 ARM at 3%, the rate cannot rise beyond 8% during the entire term of the loan.

The remaining three products have a yearly rate change cap of 2% and total cap of 6%. The rate cannot rise by more than 2% annually and 6% over the entire term of the loan.

Benefits for Borrowers

The FHA hybrid loans allow potential homebuyers to combine the advantages of fixed rate and adjustable rate programs. Borrowers can avail of the security presented by fixed payments on the loan during the initial years. A hybrid loan is a good choice for borrowers who intend to stay in their home for a number of years and look forward to an increase in their income levels in the future. It is appealing to young borrowers, as well who cannot afford the high interest rates of traditional fixed rate products during the earlier part of the loan term.

FHA Reducing Wait Times

The news by the Federal Housing Authority may be good news for potential home buyers who have recently suffered a deed-in-lieu, foreclosure or short sale.

Traditionally, a “black mark” is placed on a person’s credit report after filing for a foreclosure or short sale and the black mark stays for a minimum of three years. This limits the number of home buyers as well as leaves a negative report on a credit rating that otherwise may have rebounded. Bankruptcies will remain on a credit report as well, however their black mark can be removed within a year through proper management.

Fortunately, the FHA has announced that it will be possible to remove the black mark from a foreclosure or short sale in a significantly shorter period of time – as soon as one year from the filing. This is great news for Americans who were forced into a foreclosure or short sale but were able to rebound quickly from it.

Financial Obligations

While there are no guarantees, the primary concern of the FHA is to see that all financial obligations are being taken care of responsibly and timely. A year’s worth of on-time payments may be enough to convince lender’s that they are back on track. FHA lenders have the authority and backing of the federal government to justify the slightly elevated risk of lending to someone who has already received the black mark. Therefore, at present, only FHA backed housing programs are covered by the reduced time constraint. Private lenders may be convinced as well, but there is little to no incentive for them to take such a risk.

Who Is Eligible?

The first requirement is that the foreclosure, short sale, etc. was due to an unexpected economic event such as unforeseen unemployment, hospitalization, or other loss of income surpassing 20% of the total income for at least six months.

The second requirement is to show proof that you are fully, or sufficiently, recovered from the economic event to afford and maintain mortgage and other cost-of-living payments. Furthermore, proof will be required that the borrower was meeting mortgage and other expenses prior to the economic event.

This program is designed to help previous home owners who were dramatically impacted due to unforeseen circumstances that have the means and desire to be home owners again.

How To Remove The Black Mark

The first step is to approach the FHA. Any potential borrowers will attend at least one mandatory one-on-one housing counseling from a Department of Housing and Urban Development-approved counselor. This meeting must take place within six months of submitting the application for an FHA loan. Be prepared with all current financial documentation showing your ability to pay, as well as documentation prior to the economic event that showed proper and continuous payment towards your financial obligations. This will greatly speed up the process as well as enhance your chances for approval.

Because of the programs being offered by the FHA, a deposit of as low as 3.5% may be required to purchase a new home, depending on various factors and programs available to you. A counselor will help determine which path is most beneficial for you.

This program is designed to help previous home owners who were dramatically impacted due to unforeseen circumstances that have the means and desire to be home owners again.